It always surprises me how often people put off something as exciting as the purchase of their next home because they’re trying to perfectly time the market. If this sounds like you, listen up…
The economic drivers underlying the real estate market are incredibly complex. If Ivy league think tanks with water cooled super computers and battalions of card carrying Mensa super economists can’t reliably predict or fully control the housing market when they’ve got nearly infinite resources …do you REALLY think you’re going to be able to do it? REALLY?
If you’re honest with yourself, you know the answer is No. The reason is simple. The issues are far too murky, and you’re too far down the stream from the really useful information even if you had the means of sorting it out. By the time market data is recorded, categorized, analysed, packaged, and disseminated in the infotainment format it typically hits the public arena in, it’s already MONTHS old, and based on a Nationally scaled format that makes it about as useful as looking at what the National weather was 6 months ago and trying to determine if you will need a rain coat tomorrow.
Real Estate purchases are by definition, a local event. Hyper local in fact. The broad stroke data has to be evaluated against something as small as a specific property in a specific location on the market at a specific time for a specific price. Trying to determine anything meaningful or useful from that small a segment of information is virtually useless. A statistician would say that you’re not working with a statistically significant quantity of data.
So here’s what you need to know:
1. “When” are we in the seasons of the market? There are only 4. First, you can have lower than expected prices with lower than expected interest rates. Here you are on the down-slope of a buyers market heading for the bottom. Second you can have lower than expected prices with higher than expected interest rates. Here you are in the momentum shift from buyer to seller. The best of the best purchases are found here because inventory is generally going to be high and prices for homes and financing will be low. Third you have higher than expected prices with higher than expected interest rates. Here you are on the up-slope of a sellers market. You will make more money on your sale, but making your purchase may be more challenging. Finally, you have higher than expected prices, and lower than expected interest rates. This will be the momentum shift from sellers market to buyers market.
2. Where is the opportunity of the season? Every season has it’s opportunities. Low prices and low interest rates are amazing if you’re making a purchase. It’s a great time to get a ton of house for the money on your first purchase, or sell and trade UP because the declining values would have made the more expensive home a relatively better deal than that of a less expensive one. Because you have not yet hit the bottom, you just have to plan for the idea that pricing may continue to go down for a while before bottoming out. Low prices and increasing interest rates means you’re close to the bottom and are buying close to the turn. You’re likely at about as good a deal as you can be on the house, but you’re losing some on the long term loan costs because the interest rates are more than what they were. Rising prices and rising interest rates are better for a sale. You’re going to gross more on the sale of your home because things have started to go up again. You also have the confidence that those two factors will tend to extend the time that prices will rise so this will represent your best opportunity for equity growth. Finally, higher prices and lower interest rates. The is a great time to sell and trade DOWN. your larger home will be worth close to the max or perhaps just over the peak of max, and trading into a less expensive house may give you the opportunity to pay down or pay off the principle of a loan thus shortening the time you have to pay the lender.
In every market there are areas of opportunity depending on what is happening at that particular moment. But you can’t act on what “might” happen. You have to act on what “IS” happening. Those for market seasons are utterly reliable in their sequencing, but the specific timing can take years, or it can take months depending on what’s happening with the economic environment. The key is knowing whether the best move is a trade up or a trade down and then doing it quickly while the facts support your overall life plan.